Loan for building a house. Subtleties of design

Recommendation points

• Mortgage
• Consumer loan
• Target loan
• Borrower requirements
• Eligibility for benefits
• Step-by-step registration procedure
• Profitable banking programs
• Terms of the loan agreement. What to look for
• Hidden payments
• Insurance
• Termination conditions
• Payment Schedule
• Liability of the parties
• Useful practical advice
• In what currency to take money from the bank
• How to insure against rising prices for construction materials and work
• What to do if the loan that the bank agrees to issue is not enough to build a house

There are different types of home construction loans. Consider the advantages and disadvantages of each of them..

Mortgage

In this case, the lender issues money secured by real estate. The advantage of this financial service is its relatively low interest rates. So, in the fall of 2014, on average, they amounted to 14% per annum..

Its disadvantage is the need to make an initial payment, the presence of guarantors, and the fact that the borrower runs the risk of losing the collateral in case of non-payment of the debt to the lender.

Consumer loan

In this case, the bank issues money without any security and with a minimum of information. Also, when applying for a consumer loan, the person who issued it does not need to report to banks on the progress of construction, which saves him from lengthy paperwork.

The obvious disadvantage of consumer loans is the small maximum amount a financial institution can issue. For example, one of the largest banks in Russia – Sberbank – currently can issue a maximum of 1,500,000 rubles without collateral. Also significant disadvantages are the short loan repayment period and high interest rates. In the same Sberbank, it is issued for a maximum of 60 months at 18.5% per annum. And this is not the limit, for example, some financial institutions are currently issuing consumer loans at 62.9%!

Target loan

In this case, the lender issues money for a specific purpose – building a house. That is, the borrower has no right to spend the funds received on something else..

As a rule, such a loan requires collateral. Most often, it becomes a land plot on which construction is underway or an unfinished house. In the latter case, the borrower needs the building to be registered as an unfinished construction object, otherwise his chances of getting a loan are extremely small. The maximum amount that a financial institution can give is often calculated based on the value of the land for which the money is given. For example, the “Bank of Moscow” issues targeted loans in the amount of 200% of the cost of the site, which acts as collateral.

Benefits:

• fairly low interest rates;
• high probability of a loan: when the borrower provides the bank with a specific construction plan, it is much easier for a financial institution to approve a loan application;
• no need to provide your own home as collateral: that is, even if the debt to the lender is not paid, the borrower will not be on the street.

Disadvantages:

• a large package of documents that the borrower needs to collect;
• difficulties in obtaining cash: often a financial institution prefers to transfer the required amount to the account of the construction company with which the borrower has entered into an agreement. In this case, it can be sure that the money issued will be spent for its intended purpose;
• in some cases, the loan is not fully issued, but in parts (after the completion of each stage of construction, the next tranche is transferred to the borrower).

Borrower requirements

Since banks do not put forward any special requirements for the borrower when applying for consumer loans, we will consider the criteria by which financial institutions allocate funds for mortgages and targeted loans.

Required documents:

• application form for a loan;
• documents proving the identity of the borrower: income statement, the period of which can vary from six months to several years, work book, extract from the retirement account;
• documents for the land plot;
• building permit;
• collateral documents.

Eligibility for benefits

There are categories of people who can get money to build a house on more favorable terms. These include:

• young families: there is a federal program according to which the state compensates up to 30% of the mortgage amount to young families;
• retirees: in many financial institutions, they can get a mortgage on simplified terms compared to ordinary borrowers;
• families who have given birth or adopted children: they have the right to use their maternity capital to receive funds for building a house. Recall that in 2014 its size was 429,408.50 rubles.

Step-by-step registration procedure

1. Analysis of bank offers and selection of the most profitable lending program.
2. Consultation with the manager on the list of required documents and other issues of interest.
3. Land registration.
4. Obtaining building permits.
5. Preparation of design estimates.
6. Collection of other documents required to receive funds.
7. Submission to the bank of the application form and all the necessary documentation.
8. Valuation of property that will act as collateral.
9. Making insurance for collateralized property.
10. Making the first installment.
11. Signing a contract.
12. Obtaining credit funds.

Profitable banking programs

Nordea Bank provides borrowers with a ruble mortgage loan for the construction of a residential building for 30 years at 15.25% per annum. The maximum amount is 1,000,000 euros for Muscovites and 750,000 euros for residents of the regions. The collateral must be a property.

VTB24 Bank provides non-targeted mortgage loans secured by housing for up to 20 years. The maximum amount is 90 million rubles. If the loan is issued in rubles, the interest rate starts from 14.95%. If in dollars or euros – it is 10% per annum. The big advantage of this loan is the freedom to choose the borrower. He can independently choose the purpose for which he will spend the funds received: treatment, improving housing conditions, buying a car, etc..

The Bank of Moscow issues loans to the population for building houses for up to 30 years on the security of land. A serious plus of their programs is the absence of a down payment. The amount of money that the borrower can receive is calculated based on the assessment of the site on which construction will be carried out (200% of its value) The interest rate varies between 12.95 and 13.85% per annum.

Sberbank provides its clients with funds to build a house for up to 30 years. The down payment is 15% of the loan amount. Interest rates – 13-14% per annum. Collateral can be either a house that will be built or housing that is already owned by a potential borrower.

The advantages of this loan program are the ability to attract co-borrowers and receive a deferral of payments in the event of a rise in construction costs.

Terms of the loan agreement. What to look for

The biggest mistake that a borrower can make is to assess the profitability of a bank offer only by the main parameters: interest rate, term, maximum amount, subject of collateral, etc. Indeed, in addition to them, there are many conditions in the loan agreement that must be paid attention to..

Hidden payments

Many financial institutions advertise mortgage programs with extremely low interest rates. But upon careful reading of the agreement, it turns out that the borrower must pay the bank various additional commissions: for the issuance of a loan, its maintenance, payment for a safe deposit box, letter of credit. And this is not a complete list of possible hidden fees. It turns out that the money that the borrower wanted to save by choosing a mortgage with a low interest rate, he will still pay the bank in the form of various commissions.

Therefore, when choosing a mortgage program, you should carefully read the mortgage agreement and calculate the amount of payments to the bank, taking into account all payments included in the agreement.

Insurance

Often in loan agreements you can find a clause according to which the interest rate increases (usually by 0.5-1%) if the borrower has not taken care of personal insurance (property that acts as collateral is always insured). The absence of such an item is an undoubted plus of the credit program. If such a condition is present, it is necessary to take into account insurance costs when calculating the cost of a loan..

Termination conditions

It is very important that the agreement lists and as detailed as possible the conditions under which a financial institution can terminate the agreement and receive the pledged item in ownership. If this is not clearly stipulated, the bank can use any reason to take away the collateral from the borrower. For example, if the agreement states that the creditor has the right to terminate the agreement in the event of a delay in payment, it is necessary to insist on clarifying the exact period of this delay. Otherwise, it turns out that just a week’s delay in payments to the bank can cost the borrower a loan and collateral.

Payment Schedule

You should be aware that the schedule of loan payments, which can be found on the bank’s website or from its managers, does not have the force of law. After some time, the borrower may be required to repay the loan amount according to a completely different schedule, arguing this by the mistake of the managers who provided the initial information or incorrect data on the website. In this case, you need to make sure that the term and amount of payments are fixed in a separate annex to the loan agreement, sealed by the bank.

Liability of the parties

As a rule, the agreement stipulates that the borrower in case of delay in payment is obliged to pay a fine in the amount of 0.1-0.5% of the amount of delay. More serious penalties in a mortgage agreement are a serious reason to think about whether to contact this bank

Useful practical advice

In what currency to take money from the bank

In most Russian banks, interest rates on foreign currency mortgages are slightly lower than on the ruble. But after the rapid rise in the exchange rate of the dollar and the euro, many Russians have already regretted their decision to prefer foreign currency to domestic. Therefore, it is definitely impossible to say which option is preferable: each of them has its own advantages and disadvantages. The main thing to remember is one simple rule: the borrower needs to take out a loan in the currency in which he receives income.

How to insure against rising prices for construction materials and work

The situation when the money allocated by the bank, due to the rise in prices for building materials, is not enough to carry out all construction work is quite possible. To avoid it, the borrower needs to draw up a detailed estimate of all the necessary work and building materials before applying for a loan. This will allow you to accurately determine the amount of the loan application..

It is also important to agree with the construction company that the price of the work is final and will not change. In this case, the contractor will not be able to demand its increase. It would not be superfluous to include a clause in the agreement that the price can be changed only in the event of a significant increase in the cost of building materials and establish a clear quantitative criterion for the concept of “significant” (for example, by 30%).

What to do if the loan that the bank agrees to issue is not enough to build a house

There is an option of attracting co-borrowers and obtaining a loan for the construction of a house for two families (duplex). That is, the borrower and the co-borrower will jointly pay the debt to the lender, and after the completion of construction, they can register the house as joint ownership. The advantages of this option are obvious:

• you can get a much larger loan with a co-borrower, because joint and several liability serves as an additional guarantee for the bank that all funds will be returned;
• repaying a loan together is also much easier;
• the costs of building and operating a duplex will be much less than for the construction of two separate houses. After all, they will have a common roof, heating costs will decrease. Also in this case, you can save on land..